While the IMF has lifted its forecasts for China’s economic growth this year, it has painted a very different picture for the second half of the decade.
The latest International Monetary Fund assessment of the state of China’s economy paints a more encouraging view of its near-term performance but highlights the longer-term structural challenges confronting its policymakers, complex threats that will be a brake on growth for years.
Reduced global demand amid rising interest rates in the major economies, the intensifying trade tensions with the US and its allies, the continuing restructuring of global supply chains, the tightening of US technology sanctions and the wars in Ukraine and the Middle East would all be impacting the world’s largest manufacturing base.
As the IMF noted, China’s remarkable growth rate in recent decades – 8 per cent GDP growth on average since 2000 – was driven by excessively high household savings that were used to finance infrastructure and residential property investment, with diminishing returns. That resulted in “elevated” debt levels.
So far, the authorities have tried to keep even the unviable big developers on life support rather than allow them to fail and spread contagion into the domestic financial system and economy, although foreign investors in the offshore bonds of the major developers have suffered massive losses. The IMF said total local government debt, based on public financial statements, was about 45 per cent of GDP last year, with 80 per cent of the debt held by banks and the rest raised from corporate bond issues and borrowings from non-bank lenders .
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